Organizational Development: The Effects of Level 5 Leadership Versus Level 4 Leadership Using Fannie Mae as The Subject Company for Comparison

Organizational Development: The Effects of Level 5 leadership Versus Level 4 leadership Using Fannie Mae as the Subject Company for Comparison

Abstract

This paper explores the effects of level 5 leadership, as defined by Jim Collins in his book Good to Great, and how a level 5 Leader impacts Organizational Development compared to a level 4 Leader. Former Fannie Mae Chief Executive Officers (CEO) David Maxwell and James Johnson are compared as level 5 and level 4 Leaders respectively. Jim Collins asks the question, "Can a good company become a great company and, if so, how? Or is the disease of "just being good" incurable?" (Jim Collins, 2001) I do not intend to use this paper to discuss the failure of the housing market, nor do I intend to argue for the political, corporate greed, or outside factors that led to the industry failure of the housing market as a casual effect on Fannie Mae. I do intend to show the leadership and organizational culture created and sustained by David Maxwell, named CEO of Fannie Mae in 1981, and how his leadership and organizational change took a good company to great organizational status. Proving the criteria based on the data collected in Good to Great by Jim Collins, showing that a level 5 leader is necessary and that level 4 leaders, like James Johnson, who took over as Fannie Mae CEO after Maxwell, are not able to sustain organizational greatness.

"Good is the enemy of great and that is the reason why we have so little that becomes great." (Collins, 2001) How did David Maxwell conduct himself in his role as CEO of Fannie Mae? How did his departure and subsequent change to James Johnson's leadership transform how Fannie Mae conducted business? There is no way to identify how Maxwell would have handled the recent housing crisis and the changes involving Fannie Mae during that time, however, it is my contention that the level 4 leadership goals of Johnson led Fannie Mae further into the depths of the crisis as compared to what may have happened with Maxwell at the helm. The level 5 Leader was a key organizational development factor leading to sustained greatness. I do not intend to define what constitutes a level 5 Leader, however, according to Kinicki, who attributes the level 5 leadership model to Collins, one of the key drivers to leading a good company to greatness is "an individual possessing the characteristics associated with level 5 leadership" (Angelo Kinicki & Robert Kreitner, 2009) and who blend personal humility with professional will.

"During the Great Depression, as borrowers defaulted on mortgages en masse and banks found themselves strapped for cash, President Franklin D. Roosevelt and Congress created Fannie Mae in 1938 in order to buy mortgages from lenders, freeing up capital that could go to other borrowers. Although Fannie Mae began with just $1 billion in purchasing power, the agency helped usher in a new generation of American home ownership, paving the way for banks to loan money to low- and middle-income buyers who otherwise might not have been considered creditworthy. Fannie Mae grew so large over the years that in 1968, with the pressures of the Vietnam War straining the national budget, President Lyndon Johnson took Fannie Mae's debt portfolio off the government balance sheet; Fannie Mae was converted into a publicly traded company owned by investors." (Kate Pickert, 2008)

Jim Collins begins his book with the question, "Can a good company become a great company and, if so, how? Or is the disease of "just being good" incurable?" (Collins, 2001) This question led Collins and his research group down a five-year path of discovery. Data was collected from publicly traded companies in the fortune 500 due to the ease of data collection. A group of eleven companies were extracted based on strict criteria and then compared to a carefully selected control group for comparison. This comparison led to essential and distinguishable factors the moved the eleven companies from good to great with sustained greatness. I chose to compare David Maxwell and James Johnson of Fannie Mae because of the exacting nature of the study and for the amount of research material available due to what has happened to the company since the end of the study and the failure of Fannie Mae, under the level 4 leadership of James Johnson, to maintain greatness after the departure of level 5 Leader David Maxwell.

How did David Maxwell conduct himself in his role as CEO? How did his departure and subsequent change to James Johnson's leadership transform how Fannie Mae conducted business? Under the leadership of level 5 Leader David Maxwell, Fannie Mae made the transition from good to great and then after a fifteen-year benchmark of sustainability, under the leadership of level 4 Leader James Johnson, fell from great during the inescapable financial meltdown that has been labeled the housing crisis. "There are many times when a rush job demands great attention placed on task completion. During a time of low morale, though, sensitivity to workers; problems would be more appropriate." (Nelson, 2011) David Maxwell was able to combine both styles when leading Fannie Mae out of the depths of losing $1 million dollars every single business day. "Over the next nine years, Maxwell transformed Fannie Mae into a high-performance culture that rivaled the best Wall Street firms, earning $4 million every business day and beating the general stock market 3.8 to 1." (Collins, 2001) Unlike his predecessor, James Johnson was not interested in either of these styles and emphasized his personal wealth and power as he led Fannie Mae into troubling times, leading the company into an opposite direction from where he found it.

James Johnson has been a long time political figure holding positions within the unsuccessful Presidential campaigns of Eugene McCarthy, George McGovern, Walter Mondale, and John Kerry. Although considerably connected politically, Johnson's success did not seem to be on winning, but pinned to the level of positions he rose to. As you begin to unravel the leadership of James Johnson and his ability to lead projects, teams, or organizations successfully, you see that his good to great story is about his ability to raise his own stature to level 4 missing out on the true leadership model that is the level 5 Leader. In her book, Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon, co-authored by Joshua Rosner, Gretchen Morgenson focuses on the managers of Fannie Mae. She writes that CEO James Johnson built Fannie Mae "into the largest and most powerful financial institution in the world".